Keeping Tomago open and keeping metals refining in Australia is important. This is important for local jobs, Australia’s wider industrial development and the shift to green metals.
But before governments hand over public money, it’s important to understand what has caused the problem.
While big companies ask for subsidies regularly, this time taxpayers are being asked to bail out Rio Tinto as a direct result of Australia’s excessive gas exports.
It is the gas companies that are to blame for the energy cost increases that Rio claims threaten Tomago’s future.
Let me explain.
Making aluminium involves huge amounts of electricity. Resource economists like to joke (we really do) that aluminium is just “congealed electricity”.
In Australia, the wholesale electricity price is largely set by the wholesale gas price. In fact, there is a “near-perfect correlation between natural gas prices and electricity prices in Australia’s National Electricity Market”.
That’s because, renewables offer their electricity to the market first because their costs are very low once they’re built (and if weather conditions are good).
Coal-fired generators usually come next because they can’t adjust their output up or down particularly quickly.
This leaves more flexible electricity sources to fill in the final amount of electricity required, and because meeting demand depends on them they get to set the price.
